Expert Advisory Committee

2.6 Query

Computation of capital gains.

1..According to the querist, the shifting of deduction as provided under section 80T to section 48(2) of the Income-tax Act, 1961 has created some ambiguity. It has brought about not only the change of Chapter but also change in phraseology of the section. Section 80T begins with the words, “Where the gross total income of an assessee not being a company includes any income chargeable under the head ‘capital gains’……….”. It was obligatory to compute deduction under section 80T with reference to the sum which was arrived at after considering deduction under sections 53, 54, 54B, 54D, 54E, 54F and/ or 54G, as the case may be. On the other hand, section 48 begins with the words, “ The income chargeable under the head ‘capital gains’ shall be ……” According to the querist, there is no indication either under section 48 (2) or under sections 53, 54, 54B, etc. as to whether the deduction under section 48(2) shall be available after considering the deductions under sections referred to above. This plainly means that deduction under section 48 (2) and under sections 53, 54, 54B, etc. as the case may be, should be available with reference to one and same amount as referred to in section 48(1)(a). The querist has also stated that the ready reckoner, to which he referred, indicates that deduction under section 48(2) shall be computed with reference to the amount which is arrived at after deductions under sections 53, 54, etc. in expressing such opinion, the reckoner points at Explanation to section 53. But, according to the querist, nothing in this section says like this.

2.The querist has given the following two methods of calculations.

Method ‘I’

Sale proceeds of diamonds

10,00,000

Less: Cost of diamonds

2,00,000

Capital gain under section 48(1)(a)

8,00,000

Less: Deduction under section 54E:

Investments in specified securities Rs. 5,00,000.00

5,00,000/10,00,000 x 8,00,000

4,00,000

Balance

4,00,000

Less: Deduction under section 48(2)

First 10,000

Balance 3,90,000

10,000

1,95,000

2,05,000

Amount chargeable to tax

1,95,000

Method ‘II’

Sale proceeds of diamonds		10,00,000
Less: Cost of diamonds		2,00,000
Capital gain under section 48(1)(a)		8,00,000
Less: Deduction under section 48(2) First 10,000 @ 100% Rs.7,90,000 @ 50%	10,000 3,95,000	4,05,000
Balance		3,95,000
Less: Deduction under section 54E: Investments in specified securities Rs. 5,00,000.00 5,00,000/10,00,000 X 8,00,000 = 4,00,000 Limited to		3,95,000
Amount chargeable to tax		Nil

3. The querist has sought the views of the Expert Advisory Committee on the above.

Opinion September 17, 1990

1.The Committee notes the Explanation to section 53 of the income-tax Act, 1961, as inserted by Finance Act, 1987, which state:

“In this section and in sections 54, 54B, 54D, 54E, 54F and 54G, references to capital gains shall be construed as references to the amount of capital gain as computed under clause (a) of sub-section (1) of section 48”.

2. The Committee also notes para 25.5 of Circular No. 495 dated 22-9-1987 issued by the Central Board of Direct Taxes which states as under:

“The above deductions referred to in section 48(2) will be given after providing for the exemptions specified in sections 54, 54B, 54D, 54E, 54F and 54G.”

3. The Committee is accordingly of the opinion that the deductions under sections 53, 54, 54B, 54D, 54E, 54F and 54G shall be computed with reference to capital gains arrived at under clause (a) of sub-section (1) of section 48. The deduction under section 48(2) shall be in respect of the capital gains arrived at after giving effect to the deductions under sections 53, 54, 54B, 54D, 54E, 54F and 54G.

4.The Committee is of the opinion that the Method I suggested by the querist is correct and Method II is incorrect.

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